CLA-2 CO:R:C:S 556373 WAW
District Director
U.S. Customs Service
9901 Pacific Highway
Blaine, WA 98230
Attn: Protest Reviewer
RE: Application for Further Review of Protest No. 3004-90-
000301; meranti lumber core jambs; GSP; imported directly
Dear Sir:
This is in response to your letter of October 24, 1991,
forwarding an Application for Further Review from Milne &
Craighead, on behalf of Liberty Woods, International, Inc.,
contesting the assessment of duties on meranti lumber core jambs
imported from Indonesia and entered into the U.S. during the
period of May through June, 1990. The protestant claims that the
merchandise is eligible for duty-free treatment under the
Generalized System of Preferences (GSP) (19 U.S.C. 2461-2466).
We have also considered in connection with this protest
information submitted by the protestant on January 2, and August
17, 1991.
FACTS:
The protestant claims that the subject entries of meranti
lumber core jambs are eligible for duty-free treatment under the
GSP. According to the protestant, the entries covering this
protest were erroneously changed from a duty-free status to a
dutiable status based on the determination by Customs that the
shipments were not "imported directly" from a BDC for purposes of
the GSP. The protestant states that all of the material imported
to the U.S. was stored in bond at the Vancouver, Canada, port
under customs authority and was subsequently shipped in bond to
the U.S. through the port of Blaine, Washington. The protestant
claims that at no time did the merchandise enter into the
commerce of Canada while in Vancouver and the cargo was not
subjected to operations other than loading and unloading.
Accordingly, the protestant maintains that the merchandise
entering into the U.S. from Canada satisfies the requirements of
section 10.175(d), Customs Regulations (19 CFR 10.175(d)), and
should be deemed "imported directly" from Indonesia.
ISSUE:
Whether the meranti lumber core jambs from Indonesia should
be considered "imported directly" for purposes of the GSP.
LAW AND ANALYSIS:
Under the GSP, eligible articles the growth, product or
manufacture of a beneficiary developing country (BDC) which are
imported directly into the customs territory of the U.S. from a
BDC may receive duty-free treatment if the sum of (1) the cost or
value of materials produced in the BDC, plus (2) the direct costs
of the processing operations in the BDC, is equivalent to at
least 35% of the appraised value of the article at the time of
entry into the U.S. See 19 U.S.C. 2463(b).
If an article is produced or assembled from materials which
are imported into the BDC, the cost or value of those materials
may be counted toward the 35% value-content minimum only if they
undergo a double substantial transformation in the BDC. See
section 10.177, Customs Regulations (19 CFR 10.177), and Azteca
Milling Co. v. United States, 703 F. Supp. 949 (CIT 1988), aff'd,
890 F.2d 1150 (Fed. Cir. 1989).
A substantial transformation occurs "when an article emerges
from a manufacturing process with a name, character, or use which
differs from those of the original material subjected to the
process." See The Torrington Co., v. United States, 596 F. Supp.
1083 (CIT 1984), aff'd, 764 F.2d 1563, (Fed. Cir. 1985), citing
Texas Instruments Incorp. v. United States, 520 F. Supp. 1216
(CIT 1981), rev'd, 681 F.2d 778 (CCPA 1982).
As stated in General Note 3(c)(ii)(A), Harmonized Tariff
Schedule of the United States Annotated (HTSUSA), Indonesia is a
designated BDC. The merchandise at issue is properly classified
under either subheading 4418.90.4030, HTSUSA, which provides for
"Builders' joinery and carpentry of wood. . . Other: Other: Other
fabricated structural wood members," or subheading 44l8.90.4090,
HTSUSA, which provides for "Builders' joinery and carpentry of
wood. . . Other: Other: Other." Articles provided for in these
two provisions are eligible for duty-free treatment under the GSP
provided that they are a "product of" a BDC, they are "imported
directly" into the U.S. from a BDC, and the GSP 35% value-
content requirement is met.
Prior to August 20, 1990, the GSP program differed from the
Caribbean Basin Economic Recovery Act (CBI) and U.S.-Israeli FTA
programs in that the latter programs included a "product of"
requirement, while the GSP did not. This requirement means that
to receive duty-free treatment, an article either must be made
entirely of materials originating in the beneficiary country or,
if made of materials from a non-beneficiary country, those
materials must be substantially transformed in the beneficiary
country into a new or different article of commerce. In Madison
Galleries, Ltd. v. United States, 688 F. Supp. 1544 (CIT 1988),
aff'd 870 F.2d 627 (Fed. Cir. 1989), the court concluded that,
under the GSP statute, it is unnecessary for an article to be a
"product of" a GSP country to be eligible for duty-free treatment
under that program. However, section 226 of the recently enacted
Customs and Trade Act of 1990 (Public Law 101-382) includes an
amendment to the GSP statute requiring an article to be a
"product of" a GSP country for it to receive duty-free treatment.
This amendment was effective for articles entered, or withdrawn
from warehouse for consumption, on or after August 20, 1990. See
T.D. 91-7 dated January 16, 1991 (25 Cust. Bull. 6). Since the
entries at issue in this protest were entered prior to August 20,
1990, there is no "product of" requirement.
The question presented in this protest is whether the
subject merchandise which was shipped from Indonesia to Canada
and then subsequently transported in bond to the U.S. may be
considered to be "imported directly" into the customs territory
of the U.S. from a BDC for purposes of satisfying 19 CFR
10.175(d). Section 10.175(d) states the following:
"(d) If the shipment is from any beneficiary developing
country to the U.S. through the territory of any other
country and the invoices and other documents do not show the
U.S. as the final destination, the articles in the shipment
upon arrival in the U.S. are imported directly only if they:
(1) Remained under the control of the customs authority of
the intermediate country;
(2) Did not enter into the commerce of the intermediate
country except for the purpose of sale other than at retail,
and the district director is satisfied that the importation
results from the original commercial transaction between the
importer and the producer or the latter's sales agents; and
(3) Were not subjected to operations other than loading and
unloading, and other activities necessary to preserve the
articles in good condition."
The protestant claims that the meranti lumber core jambs
were "imported directly" from a BDC within the meaning of 19 CFR
10.175(d), because the merchandise was shipped from Indonesia to
a Customs bonded warehouse in Canada and then subsequently
transported in bond to the U.S. The protestant maintains that,
while in Canada, the merchandise was in bond and under Customs
authority, did not enter into the commerce of the intermediate
country, and was not subjected to operations other than loading
and unloading in the intermediate country.
Merchandise is deemed to have entered the commerce of an
intermediate country for purposes of the GSP if manipulated
(other than loading and unloading), offered for sale (whether or
not a sale actually takes place), or subjected to a title change
in the country. See HRL 071575 dated November 20, 1984.
In the instant case, the operations which the protestant states
were performed in Canada do not appear to constitute more than
simple loading and unloading of the merchandise, and, as such,
would not cause the merchandise to enter the commerce of the non-
BDC.
Therefore, in regard to those entries for which the
protestant has provided documentary evidence, in the form of
"Customs Cargo Control Document" (Revenue Canada Customs and
Excise Form A8A), which substantiates that entries of meranti
lumber core jambs remained under the control of customs
authorities in Canada before shipment to the U.S., the protest
should be granted. However, in regard to those entries for which
the protestant has not provided a Form A8A, the protest should be
denied.
HOLDING:
Upon review of the documentary evidence submitted with the
protest, which disputes the assessment of duties on shipments of
meranti lumber core jambs from Indonesia, it is our determination
that the protest should be granted for Entry Nos. 422-07509029
and 422-07512619, the protest should be granted in part for the
merchandise covered by Entry Nos. 422-07504384 and 422-07515158,
which is documented on Form A8A, and the protest should be denied
for Entry Nos. 422-07509490 and 422-07510522. A copy of this
decision should be attached to Customs Form 19 and mailed to the
protestant as part of the notice of action on the protest.
Sincerely,
John Durant, Director
Commercial Rulings Division